Ricardian_article_I

Ricardian_article_I - NBER WORKING PAPER SERIES WHAT GOODS...

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Unformatted text preview: NBER WORKING PAPER SERIES WHAT GOODS DO COUNTRIES TRADE? A QUANTITATIVE EXPLORATION OF RICARDO'S IDEAS Arnaud Costinot Dave Donaldson Ivana Komunjer Working Paper 16262 http://www.nber.org/papers/w16262 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 August 2010 We thank Gene Grossman, Gordon Hanson, Giovanni Maggi, Jim Rauch, Stephen Redding, Frédéric Robert-Nicoud, Bob Staiger, Kjetil Storesletten, Jonathan Vogel, Kei-Mu Yi, three anonymous referees, and seminar participants at many institutions for very helpful comments. We also thank Don Davis and Sam Kortum for stimulating discussions and precious advice at the Princeton IES Summer Workshop. Nadege Plesier provided excellent research assistance. This paper is a heavily revised version of the 2007 NBER working paper "What Goods Do Countries Trade? New Ricardian Predictions". The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. © 2010 by Arnaud Costinot, Dave Donaldson, and Ivana Komunjer. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas Arnaud Costinot, Dave Donaldson, and Ivana Komunjer NBER Working Paper No. 16262 August 2010 JEL No. F10,F11 ABSTRACT The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received virtually no attention in the empirical literature since the mid-sixties. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (2002), the present paper offers such foundations and uses them to quantify the importance of Ricardian comparative advantage. Using trade and productivity data from 1997, we estimate that, ceteris paribus, the elasticity of bilateral exports with respect to observed productivity is 6.53. From a welfare standpoint, however, the removal of Ricardian comparative advantage at the industry level would only lead, on average, to a 5.5% decrease in the total gains from trade. Arnaud Costinot Department of Economics MIT, E52-243B 50 Memorial Drive Cambridge MA 02142-1347 and NBER [email protected] Dave Donaldson MIT Department of Economics 50 Memorial Drive, E52-243G Cambridge, MA 02142-1347 and NBER [email protected] Ivana Komunjer Department of Economics University of California, San Diego 9500 Gilman Drive La Jolla, CA 92093-0508 [email protected] A QUANTITATIVE EXPLORATION OF RICARDO&S IDEAS 1 1. Introduction The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebratedindustries in which they are relatively more productive....
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This note was uploaded on 11/02/2010 for the course ECON 180-428-20 taught by Professor Mcdevitt during the Spring '10 term at UCLA.

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Ricardian_article_I - NBER WORKING PAPER SERIES WHAT GOODS...

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